Plastic Packaging Tax: due diligence to avoid unexpected liability

The Plastic Packaging Tax (PPT) is intended to incentivise businesses to use recycled plastic in plastic packaging manufactured in, or imported into, the UK. In addition to charging those primarily liable to pay PPT, the tax has the potential to give rise to unexpected liabilities for businesses involved in the supply chain of plastic packaging components. 

In light of recent HMRC guidance, these businesses in the supply chain should be considering what due diligence checks they need to be carrying out to mitigate the risk of secondary liability or joint and several liability arising.

What is the Plastic Packaging Tax?

The PPT was introduced from 1 April 2022 to encourage businesses to use more recycled plastic material in their plastic packaging.

PPT applies at a flat rate of £200 per metric tonne on ‘plastic packaging components’ containing less than 30% recycled plastic, when measured by weight, which are manufactured in or imported into the UK.

Certain categories of products are specifically excluded from being packaging components. These are products designed for:

• longer-term storage: contain goods at the time of sale to the user and are suitable for re-use for the same or similar goods;
• integral use: form an integral part of the goods sold, without which the goods cannot reasonably be used or consumed; or
• presentation: re-used in the presentation of the goods and are permanently set aside for this purpose on or before they are manufactured or imported.

In addition, there is no charge to PPT for plastic packaging components which are:

• used as transport packaging in the delivery of goods into the UK; 
• used as ship, aircraft or rail stores;
• used in the immediate packaging of a medicinal product; or
• permanently designated or set aside for use other than in the containment, protection, handling, delivery or presentation of goods.

Only those required to register for PPT are primarily liable to pay it. Registration is on a threshold basis for businesses who expect to import into the UK or produce in the UK 10 metric tonnes or more of plastic packaging components in the next 30 days or have imported into the UK or have produced in the UK 10 metric tonnes or more in the past 12 months (or, if later, since 1 April 2022).

The person primarily liable to pay PPT is the last business to substantially alter the packaging or on whose behalf the packaging is imported.

If you are unsure if your products fall within the PPT regime, please get in contact and a member of our tax team will be happy to advise you.

When else could I be liable to pay PPT?

While your business may not be primarily liable to pay PPT, recently published HMRC guidance now highlights how wide the liability can stretch and how you may still be caught by a PPT charge.

This guidance builds on the existing legislation granting HMRC the ability to, subject to certain conditions being met, issue secondary liability or joint and several liability notices on other businesses in the supply chain. These notices make the businesses to which they are issued potentially liable for existing unpaid PPT or any PPT which becomes unpaid in the future.

The legislation uses the concept of a ‘related business’ – any business which is involved in the supply chain. It need not be connected with the entity which has the primary liability, although it could be. However, the critical point is an independent third-party business, regardless of its legal structure, is within the definition of a ‘related business’ if it falls within the supply chain.

Secondary liability

Secondary liability assessment notices issued by HMRC are intended to capture existing PPT liabilities which have not been paid by the business in the supply chain which is primarily liable for the tax.

HMRC has the ability to issue secondary liability assessment notices when you carry out activities as part of a related business if you knew, or should have known, that the PPT has not been paid and you have:

• taken steps along with the person primarily liable to not pay the tax; or
• been involved in the transporting, storage or otherwise dealt with the relevant plastic packaging components.

You can apply to HMRC for the notice to be cancelled or to reduce the tax amount due.

The guidance gives hauliers, warehouse operators, suppliers and retailers as the types of businesses which may fall within these tests. Unfortunately, it does not expand on these examples and fails to offer any further advice as to how to determine whether other businesses involved in the supply chain may fall within the scope of secondary liability.

Secondary liability assessment notices can be issued up to two years or 20 years (in cases of deliberate non-payment of PPT) after the accounting period it refers to.

Joint and several liability

Joint and several liability notices are used by HMRC where it considers that there is a risk that PPT will not be paid in the future. The notices make other businesses in the supply chain jointly and severally liable for any PPT which relates to them and is not paid after the date on which the notice is issued.

You may be served with a joint and several liability notice when you carry out activities as part of a related business if either:

• you know, or should know, that the tax will not be paid by the entity with primary liability, and you’ve taken steps to avoid the tax being paid; or
• you’re involved in transporting, storing or otherwise dealing with chargeable plastic packaging components when the entity with primary liability does not intend to pay the tax.

Unlike with secondary liability, the second limb of this test does not appear to be subject to the knowledge, or deemed knowledge, of the business in question. This would, in effect, create a test of strict liability with the potential for harsh outcomes for those involved in the supply chain, regardless of whether they carried out the due diligence checks we discuss below. It remains to be seen whether HMRC will, in practice, consider any of those checks when deciding whether to issue a joint and several liability notice in such circumstances.

If the company with primary liability does not pay their PPT within two years of a joint and several liability notice being issued, you may be issued with a joint and several liability assessment notice. The amount due will be calculated by considering the weight of the plastic packaging components connected to you.

How can you protect yourself?

Due diligence checks will reduce the risk of being involved in a supply chain where PPT goes unpaid. HMRC may consider these checks in determining whether to issue a secondary liability assessment notice or joint and several liability notice. If appropriate diligence is carried out, then a related business should be able to demonstrate either that it did not know or that it ought not to have known of PPT irregularities committed by the business with the primary liability. Therefore, appropriate diligence is a shield to prevent a member of the supply chain being assessed to another business’s tax.

HMRC has avoided publishing any specific due diligence checks which must be carried out and leaves it up to you to decide if your business’s due diligence checks are relevant, reasonable and proportionate to your business. However, they do make some suggestions as to the types of checks that should be considered.

These checks include:

• obtaining confirmation from the supplier within your commercial agreements whether packaging is chargeable to PPT and who is liable;
• asking for details of the amount of PPT paid by the person primarily liable so it can be included on your invoices;
• requesting information or evidence that any PPT due is being paid; and
• checking that any evidence provided is valid.

You should carry out these checks at least every 12 months and keep a record of those checks carried out.

If you are involved in the manufacture of plastic packaging components and are concerned you may be primarily liable for PPT, there are various checks which you can also carry out. These include obtaining written confirmation from your customer to prove any claim that you’re not liable (for example, that your customer performed the last substantial modification) or getting confirmation of the origin of any recycled plastic your reprocessor supplies.

This article was co-authored by Rachael Jeffries.